Types of Loans
Fixed loan or variable loan?
Simply explained, a fixed loan will have a “fixed” interest rate, whereas a variable loan’s interest rate will “vary”. In a fixed loan, the interest rate will be fixed for an agreed period of time. This could be for one year or five years. Fixed loans offer you certainty of your repayments for that period of time. However, if interest rates fall while you’re in your fixed term, you won’t be able to take advantage of them. Selling during a fixed term can also be tricky.
A variable loan’s interest rate will rise and fall — this could be due to the market or due to your lender’s decisions. A variable rate allows you to make additional payments, sell whenever you like, and generally have more freedom or flexibility. However, your minimum repayment cost can rise at any time.
A split loan is where it’s not just a fixed loan or just a variable loan. It’s part of both. So, a certain percentage of your loan will be a fixed loan and the remainder will be variable. This often means you can take advantage of benefits on either side of the loans.
Maybe you don’t meet all the necessary requirements to take out a home loan. A non-conforming loan might be for you. These loans seek to help those with bad or non-existent credit history, low documentation, or the self-employed to purchase a home.
Offset accounts can help you pay off your loan sooner. They’re basically a normal transaction account that’s linked to your home loan. So, you can still pay money into it and take it out whenever you please, however, the more money in the account and the longer it stays there, the more of your interest is “offset”. It means you’ll pay the interest on your loan less the amount in the offset account.
Interest Only Loans VS Principal & Interest
A big decision you’ll need to make with your home loan is whether you’ll be paying interest only on it, or interest and principal. Principal repayments refer to paying off the actual loaned amount, whereas interest only refers to paying off the accumulated interest on your loan. Interest only loans typically suit investors better than home buyers
Investment loans are available for those who wish to buy an investment property and rent it out, but can’t afford the outright cost of the home. These have much stricter eligibility requirements and typically require a larger deposit.